Israeli Leaders Respond to Moody’s Credit Rating Downgrade Amidst Ongoing Conflict with Hamas
In a historic move, Moody’s, the rating agency, has downgraded Israel’s credit rating from A1 to A2, marking the first time the country has faced such a downgrade. The decision comes as a result of concerns over the ongoing conflict with Hamas militants in Gaza and the potential impact on Israel’s economy. The agency also lowered Israel’s debt outlook to negative, citing the risk of the conflict spreading to Israel’s northern front with the Lebanon-based Hizbollah militant group.
Israeli leaders, however, have not taken this downgrade lightly. Prime Minister Benjamin Netanyahu argues that the rating downgrade is a direct consequence of the war rather than a reflection of the underlying economy. He asserts that once the war is won, the rating will bounce back. Netanyahu’s statement, made during the Jewish Sabbath, emphasizes the connection between the downgrade and the ongoing conflict.
Bank of Israel governor Amir Yaron has come to Israel’s defense, highlighting the country’s strong macroeconomic and monetary policies. Yaron points out that despite the initial shock of the war, Israel’s economy has shown rapid recovery, including in the financial markets. He believes that Israel has a history of overcoming difficult periods and returning to prosperity.
Finance Minister Bezalel Smotrich, an ultranationalist, dismisses Moody’s downgrade as a political manifesto based on a pessimistic and unfounded geopolitical worldview. Smotrich argues that the rating agency lacks confidence in Israel’s strength and its chosen path in dealing with its enemies. He also criticizes Moody’s for not labeling Hamas and Hizbollah as terrorist organizations in its report.
Smotrich further suggests that if Israel had accepted international demands to stop the war and establish a Palestinian state in Gaza and the West Bank, the downgrade would not have occurred. However, he refers to these demands as a “suicide plan” and asserts that Israel derives its strength from a deep faith in the righteousness of its path.
The conflict between Israel and Hamas began when Hamas fighters stormed into Israel, resulting in the deaths of 1,200 people and the capture of 250 hostages, according to Israeli officials. In response, Israel launched an offensive in Gaza. Health authorities in the Hamas-controlled territory claim that Israeli attacks have resulted in the deaths of over 28,000 Palestinians, including thousands of children.
Negotiations for a possible ceasefire are ongoing, with Qatar, Egypt, and the US serving as mediators. The potential ceasefire could lead to the release of remaining hostages and increased aid flow into Gaza to support the desperate civilian population.
Despite the downgrade, Yaron remains confident in Israel’s economic fundamentals. He points out that even according to the rating agency’s assessments, Israel’s debt-to-GDP ratio should peak at 67%, which historically has not caused delays in repayments. Yaron urges the Israeli government to take appropriate measures, such as passing a 2024 budget, to address global market concerns.
In conclusion, Moody’s credit rating downgrade has sparked a strong response from Israeli leaders. While they argue that the downgrade is a result of the ongoing conflict with Hamas, they also emphasize Israel’s strong economic foundations and ability to recover from difficult periods. The conflict continues to unfold, with negotiations for a possible ceasefire underway. The outcome of these negotiations will play a crucial role in determining the future trajectory of Israel’s economy.